Kite Realty Group Trust

NYSE:KRG

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Kite Realty Group Trust Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Bryan McCarthy, Senior Vice President, Marketing and Communications. You may begin.

[Bryan McCarthy, executive]

Thank you, and good morning, everyone. Welcome to Kite Realty Group's third quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that could adversely affect the company's results, please see our SEC filings, including our most recent 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial results.

On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President, Portfolio Management, Wade Achenbach; and Senior Vice President, Chief Accounting Officer, Dave Buell. I will now turn the call over to John.

[John Kite, executive]

Thanks, Bryan, and good morning, everyone. So during the past quarter, we continued executing on our strategic objectives, while remaining focused on our long-term goals. As set forth in our earnings release, we generated FFO of $41.1 million or $0.48 per share. We grew same-store NOI by 1.5% compared to last year, this increase was driven by base rent growth of 1.9%. We improved our ABR by 5% over the past year to $16.77 per square foot, and we continued growing our small shop leased percentage to 90.9%, 120 basis points higher than this time last year.

Our investment-grade balance sheet remained strong, and we currently have only $20.7 million of loan maturities through 2020.

Following the third quarter, we closed on a new $250 million 10-year unsecured term loan. Based on the indicative pricing, we expect the all-in swap rate on this loan to be approximately 50 basis points inside of a public bond issuance. The unique structure was a result of our team's ingenuity and our strong lending partnerships. The loan allowed us to improve our weighted average debt maturity to 6 years, which is an increase of 1 full year. The loan also improved our debt maturity ladder so that no more than 20% of our debt comes due in any calendar year, and we needed the loan proceeds to fully retire the $200 million 7-year term loan due in 2022, and prepaid $50 million of the 5-year term loan due in 2021. This innovative credit product reduces our risk and improves our financial flexibility. While our net debt-to-EBITDA slightly ticked up this past quarter to 6.7x, we remain committed to reducing our leverage in the near term.

Looking at operations, approximately 70% of our executed leases and tenant openings in the third quarter were restaurant, grocery and service offerings. We made further progress on our anchor leasing efforts by executing 2 box leases in the third quarter. And subsequent to quarter end, we signed 2 additional box leases bringing our current anchor-leased percentage to 95.5%. Thus far, year to date, we've signed 8 anchor boxes in our operating portfolio compared to having signed 2 at this time last year. On a related note, we continue to make progress on our Toys vacancies. To date, we have 2 executed leases and 2 leases in negotiation, collectively accounting for 40% of our Toys square footage.

With respect to development, in September we completed the Embassy Suites at Notre Dame, the newest addition to our Eddy Street Commons mixed-use development. The development features 170,000 square feet of restaurants, retail shops and office space, along with 266 multifamily units and 201 previously sold residential units. Construction on Phase II is currently underway with the addition of 452 multifamily units, 21 for sale residential units, 8,500 square feet of retail space and a community center. Eddy Street Commons is an exciting and vibrant development that demonstrates our team's ability to execute it on complicated mixed-use projects.

Regarding earnings. We have reaffirmed our 2018 guidance at a range of $1.98 to $2.01 per share. Looking forward to next year, please keep in mind the following previously disclosed items, which will impact 2019. In 2018, we received a substantial development fee at Eddy Street Commons that will not reoccur in 2019, which is a $0.03 per share reduction. 2019 will be the first year that reflects the full impact of our TH joint venture, a $0.02 per share reduction. 2018 included accelerated noncash below-market rent amortization and partial year income from Toys that will not reoccur in that 2019, a $0.03 per share reduction.

New lease accounting standards will impact G&A in 2019, causing $0.05 per share reduction. And depending on the outcome of our hedging activities, the new term loan will increase interest expense is 2019 by between $0.02 and $0.03 per share.

In addition, we anticipate continued disposition and deleveraging activity in 2019, and we'll provide more details along with the anticipated range of asset sales when we issue guidance next quarter.

Our guidance will also take into account all of the positive variances that we expect for 2019, including, for example, our expectations that the anchor deals executed year-to-date will generate approximately $4 million of incremental NOI, half of which we expect will come online in late 2019. Lastly, we're looking forward to having Heath Fear join us as our Executive Vice President and Chief Financial Officer. Heath's credentials are well known and we're excited to bring his talent and vision on board. Also Wade Achenbach was recently promoted to Executive Vice President, Portfolio Management. Wade's been a valued and integral member of our team since 2004, and we anticipate that, that will continue. These changes at the executive level represent our commitment to maintaining a best-in-class operating platform. Thanks, everyone, for joining us on the call today. And operator, we'd be open for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Christine McElroy of Citi.

[Christy McElroy, analyst]

John, appreciate the early color on 2019. Just in thinking about the fundamental occupancy drivers that you mentioned, recognize that you have made a lot of progress on the leasing side and you did a couple more deals subsequent to quarter end. Sounds like you're at 95.5% lease today. Just as we think about moving into next year and you talked about, I think it's $4 million of NOI, half of which is expected to commence in late 2019. How should we be thinking about that lease rate, the 95.5%? And as the spread between the commenced and the leased rate narrows as some of those deals commence. How should we be thinking about that impact of occupancy next year to offset some of the drag that you detailed?

[John Kite, executive]

Well, I think that what we're trying to lay out is that we've made a lot of progress, Christy, particularly in the last quarter. And if you look out -- and again, trying to walk a fine line of not really giving guidance here, but trying to shed some light on what's going to be happening. If you think about it in total, at 95.5% leased in the anchor space, that leaves us about 450 -- approximately 450,000 square feet of vacancy. If we lease just half of that, that gets us back to 98%. I'm not -- I'm obviously not saying that what we're going to do at this point, just to give you a kind of a big picture that it really -- we're well on our way to kind of getting back to where we were. I think we were at 98% leased in the anchors for a while. For a while, we were at 99%. But we certainly see, as we're looking out right now, when we look at these 450,000 feet, which is about 15 boxes. And we don't want to get too caught up in the number of boxes because, obviously, some of these boxes we split, so it changes the number a little bit, but the important part is the 450,000 feet. I mean, we have great activity on a lot of those deals, and obviously, a couple of them are larger spaces. So even those -- getting one of those done is impactful, and I think it kind of segues into -- when you look at our spreads this quarter, we did 80 deals and literally just 1 deal being pulled out is 200 basis points of positive impact to our blended spread. So you could see incrementally getting a few of these deals done makes a big difference. So without -- we'll certainly be giving you a range of our occupancy and our lease percentage when we give guidance. And I think as our spread between leased and commenced begins to contract, I mean the laws of these small numbers can also help us on the upside as they kind of hurt us on the down side.

[Christy McElroy, analyst]

And recognizing it's not quite box, it's more in the middle, but your Mattress Firm exposure, how are you thinking about that into next year? And the potential further closings and rent release that you could see some from those boxes -- or from those stores?

[John Kite, executive]

Sure. So from a big picture perspective, Christy, because we're still in conversation with them, obviously. We have -- we started with 22. As through this process, 2 of the deals we had, we have pretty near term expirations. So those deals are going to be coming back to us. And then there was a third deal that I believe will be outright rejected. So it kind of puts us down to 19 deals.

But from there, we're currently in conversations with them on all of those. Generally speaking, it feels like pretty decent. It feels like we'll be able to come to a place that's pretty favorable for us. Because of the size of those spaces, we're generally not afraid to take them back. But by the same token, I think they want to be -- they need stores to be an ongoing company coming out of bankruptcy. So I feel actually pretty decent about it. And again, I think when we give guidance in February, we'll be pretty locked into what that is going to be for '19. But at this point, it feels pretty good.

[Christy McElroy, analyst]

Okay, and then just lastly on same store here. You kept the range of 1.5%, you're at 1.5% today on a year-to-date basis. Are you sort of implying a deceleration into Q4 or is it more just that you're maintaining conservatism on the range?

[John Kite, executive]

I think it's the latter. We have about $750,000 of bad debt expense assumed in our Q4 same-store number. As you know, this quarter, we only had about $500,000 of bad debt expense. I thing we have averaged about $450,000 over the first 3 quarters.

So there is some conservatism, but there is -- that's warranted in the environment with all the things that we're talking about with Mattress Firm and others. So we'll just have to see. I mean, hopefully we don't need all $750,000, and we'll be more at the top end of that range or better. But we want to be cautious around -- in case we have that bad debt expense.

[Operator]

And our next question comes from the line of Todd Thomas of KeyBanc Capital Markets.

[Todd Thomas, analyst]

Just back to the anchor leasing and the $4 million of NOI. Will any of the anchors, signed to date so far, commence in later this year or early '19? Or are all of the commencements essentially beginning in late 2019, as you mentioned?

[John Kite, executive]

Well, I think there is a couple that commence in early '19. But -- and there was maybe one -- I'm sorry, there were 2 that are actually open right now. Fourth quarter of '18 gets a little bit -- or actually the remaining months get a little bit. But when you look at the majority of it, Todd, it's very much weighted to the back half. And then in 2020, we feel like it's all flowing through.

[Todd Thomas, analyst]

Okay. And are any of those anchors -- or how many of those are in the same-store pool?

[John Kite, executive]

I believe 7 of those are in the same-store pool. So it's almost all of them.

[Todd Thomas, analyst]

Got it. And then so you've talked about some of the factors that are impacting same-store NOI growth this year. Base rents are growing at a decent clip in the same-store. Do you expect some of the drag from recoveries to normalize next year and smooth out a little bit? Should we expect 2019 to be a little bit more straightforward sort of below the base rent line?

[John Kite, executive]

Well, I think -- look, the great majority of this has been from the vacancy. So as these -- as we get into the back half of '19, I think that gets better. I think the front half of '19 probably is pretty similar. Again, not giving guidance right now. But I think the back half as these things get more open and then certainly into 2020, we should be back to our more normal run rates.

But I think when you have that much box vacancy, it's going to impact that in a big way and that's what happened. I mean, obviously, if you really think about same-store at 1.5%, the Toys alone on an annualized basis is 100 basis points. And then you take in the other vacancy in there, that's probably another 50. So you're getting significant both same-store impact and a recovery impact that -- since we've already leased 8 deals, you're going to start feeling that coming back, but it takes time. I mean, the lease doesn't create the recovery. It's the commencement of rents that creates recovery, right?

[Todd Thomas, analyst]

Okay, got it. And then just lastly, I was just wondering if you could talk a little bit about Pan Am Plaza and the potential hotel developments there that were in the press a little earlier last month. Maybe you can just share what the REIT's involvements might be? And how much sort of capital might be required? What the upside is to the REIT?

[John Kite, executive]

Sure. Well as I think we kind of indicated in certainly in our discussions in the press, et cetera, that it's early. We're excited that there is a very major potential opportunity. This is -- in the end of the day, this is all about the real estate. It's something that we, as we've said, that we knew 8 years ago that this was great real estate. As far as that goes, it's going to take time. We've got quite a bit more to do along the lines of making determinations what works and what doesn't.

Look, based on the potential size of this, I think we're going to be very cautious around what the REIT's risk would be, and what their capital would be. The REIT owns the land, so obviously, that's a positive. But from there, it's really going to be determined based on the overall cost of the deal, the capital structure, returns and we're obviously a retail REIT. So we're going to be very, very thoughtful around what the end game is there.

[Operator]

And our next question comes from the line of Collin Mings of Raymond James.

[Collin Mings, analyst]

John, just recognizing you're not going to provide more specific details until the next call, but maybe just update us a bit on how you're thinking about asset sales. I think you previously communicated maybe $100 million of assets you hoped to bring to the market to delever. Just anything at this juncture you can kind of provide on where that process stands? And kind of as you've kind of been moving through that, just asset pricing levels, any sort of movement as you look to bring some assets to market.

[John Kite, executive]

Sure. Yes, I mean, we definitely will be giving a very clear update on that when we issue guidance, Colin. But as I mentioned on the last call, we talked about disposing of at least $100 million. I think we're -- frankly, we're working on dispositions as we speak. There is a chance that 1 or 2 more would occur this year, but maybe not. So I think we're really going to have to sit down and look at our overall strategy for '19. That's something that I want to have Heath involved in that as we're looking at our 2019 capital structure, so I think it's premature to say. But suffice to say that we are continuing down that path, and we're kind of looking at everything and thinking through everything from a capital plan and a capital-structure perspective. And so I think we'll definitely come back to you on that. But we feel pretty positive that we're able to find fair value with the assets we're looking to sell.

[Collin Mings, analyst]

Okay, fair enough. Just as you've been kind of executing on the Big Box Surge and some of the communication around that. Maybe either you or Tom talk about what are some of the biggest pushbacks from tenants you've been receiving. And just on the margin, it sounds like maybe your willingness to split up some of that space has evolved over time. Maybe you could just talk a little bit about that dynamic as well.

[Thomas McGowan, executive]

Yes. I would say just from a push back standpoint, one of the things that we obviously try to do is move as quickly as possible. And I think in this new environment, everyone's being a little more cautious and going through their diligence and -- with a fine tune. And so that is one that we go to keep pushing, keep pushing through committee, keep pushing to get documents actually executed. But if you get back just to the basics of the deal, we feel like things are relatively stable in terms of if they have the demand and the needs of that market, we're going to be able to get fair and equitable lease numbers off of these. So things haven't changed tremendously, it's just we got to keep moving and move quickly.

[John Kite, executive]

And look, Collin, as it relates to splitting, your question, that's just a case-by-case basis and it really comes down to the tenancy and the returns. And in the example of Toys "R" Us, we are going to be splitting a couple of those boxes. So that's not something we're opposed to doing. There's just a cost associated with it and you want to get the right return on that. And also, sometimes splitting just brings in a more vibrant retail base that doing one deal might not. So I don't think we're opposed to it, and I just think we look at it on a case-by-case basis. And we'll see how it evolves. But as Tom said, I mean, we're very focused on getting these deals done, and we're making strong progress. And there is less and less competitive inventory, frankly. So I think we feel good going into next year that we'll be able to execute completely.

[Collin Mings, analyst]

All right. And one last kind of housekeeping question for me. And looks like in the sup you kind of reference one strategic anchor renewal that kind of weighed down spreads a little bit. I apologize if I missed that, but can you maybe just touch on that as well?

[John Kite, executive]

Sure. I mean it was just simply a deal that we did similar to a couple of quarters ago, where we renewed a tenant and we put no capital into it. And because of that, the spread was pretty negative. There was no capital at all that went into the deal, and it was strategic in the sense that it allowed us to do another box deal at the same shopping center to stabilize the property. So those are the kind of the 3 factors. But probably the biggest factor was 0 capital. And that's why you got a -- it's impossible to look at these metrics in a vacuum, and we really have to talk about the strategy associated with all this stuff. I mean, in the end we've got to produce positive cash flow, but there is a strategy that we go through when we do every deal.

[Operator]

And our next question comes from the line of Alexander Goldfarb of Sandler O'Neill.

[Alexander Goldfarb, analyst]

So 2 questions, John. The first is just going through the items, the headwinds for next year. It sounds at least like $0.15 of negatives, and then depending where dispositions go, that's even more so. You talked about backfilling anchors, but it sounds like that will take time, but it will only be a partial year contribution, it won't be the full year. So what are some other elements that may offset the $0.15 at a minimum reduction in earnings for next year?

[John Kite, executive]

I mean, off the top of my head Alex, again we're trying not to get too big into this. But obviously, there is still NOI that's going to be flowing in through both the completed development and redevelopment pipeline. I actually think that's in the sup about $3 million that's expected. And then you've got -- if we can -- if the NOI growth can firm up, you can get a little more from there. You've got, based on the contractual rent bumps, et cetera, and then just any small shop leasing that would occur. I mean, it's a funny thing about -- we've got a lot of focus on the boxes obviously, but if you look at the impact of leasing up shops more versus the impact of boxes, they are pretty similar in their NOI impact, right? So I think there is 3 -- there's several things that we can do from a positive perspective. But it also is what it is as it relates to the things that occurred that were onetime events. And obviously, the bond deal, there's a short-term cost to that to the term loan deal, there is a short term cost to that, but we think there is a long-term value. So -- but really in the end, it's lease up. Its lease up will impact all this stuff.

[Alexander Goldfarb, analyst]

And then the hotel site in Indy, is that a potential fee that may be a positive in '19, similar to the Eddy Street thing you had this year?

[John Kite, executive]

Yes, I mean, there would definitely be fees associated -- significant fees associated with it. Whether or not any of that could occur in late '19, it's just too early to tell, Alex. But certainly, down the road, there could be some substantial fees there. Again, you deal with that. It's cash, but it's generally not particularly reoccurring.

[Alexander Goldfarb, analyst]

Okay. But -- and I'm going to ask about dispos, but just in what you it sounds like that we're down $0.15 on negatives. There's probably a plus $0.04 or $0.05 on positives. So as far as the leasing that's -- and NOI that's coming online. Is then on the disposition side, you've spoken about wanting to refine.

Do you see a significant amount, like bricks/mortar for example, they were selling just a little bit little bit, and then suddenly it's on the north side of $0.5 billion plus of dispos. Do you guys -- do you see significant sales next year? Or is it something small like maybe $100 million?

[John Kite, executive]

I think it's too early to say, Alex. But again, as I mentioned, we have to -- I've got to be -- I've got to have Heath involved in us looking at our capital plan and not just for 1 year, over the next 5 years.

But I do think to the extent that we find good opportunities, and we can accelerate the deleveraging that we want to do, and then utilize proceeds for redevelopment projects et cetera, we're not afraid to do more than that. But I want to make sure that when we do it, we're doing it at fair value and we've got good use of proceeds. But clearly, there is an opportunity for us to try to get that completely behind us in 2019. So that's really the objective is to -- for 2019, as I said on the last call, to be the year that we are pivoting towards putting any deleveraging behind us, leasing up the boxes and focusing on 2020 and beyond growth. So if that takes a few more asset sales to do, we'll do that.

[Operator]

And our next question comes from the line of Craig Schmidt of Bank of America.

[Craig Schmidt, analyst]

I mean, I saw that you picked up again, obviously, in the small shops and you alluded to it just earlier. But given now that you're significantly above your peers, how much room do you think you can push the small shops and still get occupancy lifts there?

[John Kite, executive]

Well, Craig, look, I think we're slightly above 90%, almost 91%. It continues to be healthy. So I don't think there's any reason why we can't assume that we can get another 100 basis points at least, which gets us around 92% and maybe a little better. Because -- again, inventories are relatively low on quality space. Now you obviously as you get higher and higher, you're going to have also more opportunities to push tenants out that can't pay -- that aren't keeping up. And so maybe that -- you've got pluses and minuses. But I definitely think there is opportunity there. As you know, before we were very focused on just getting to 90% and that's -- right now, we're almost 100 basis points above that. So no reason to think that we can't continue to push it.

[Craig Schmidt, analyst]

Okay. And are a lot of the small shop pick up, are they services like you had mentioned in the service, grocery and restaurant?

[John Kite, executive]

Yes, I mean, I think a lot of the small shop space that we've been doing is both service, restaurant oriented has been a big push. Tom, any other things you can think of?

[Thomas McGowan, executive]

Yes, I think diversification in general has been big as it ties back to medical. Where you have a pediatric dentist, have different forms of health, personal training. So as much diversification as you can bring in, this is going to help grow that pool and give us pricing power and drive occupancy.

[Operator]

And our next question is from the line of Linda Tsai of Barclays.

[Linda Tsai, analyst]

Regarding the boxes -- anchor boxes, you talked about the 8 leases that have been signed. How many more anchor boxes are vacant in your portfolio? And what are the plans for those as it relates to redevelopment, dispositions or backfilling for the longer term?

[John Kite, executive]

Yes, Linda. We have -- as I mentioned a little earlier, we have -- in total we have about 450,000 square feet remaining in the boxes, in total, that's approximate. That's about 15 boxes currently. Now again, that number -- we want to be careful with the number, because that could change based on splitting spaces. But what we're really focused on is the 450,000 feet. And as I mentioned, I mean, if we can just lease half of that, we get back to 98% leased in the anchors. So -- and we think we'll do better than that. But I think we're less focused on the number and more focused on the square footage.

[Linda Tsai, analyst]

So the primary goal is re-leasing as opposed to redeveloping any of those?

[John Kite, executive]

Yes. I mean, as of right now, the primary goal would be -- that's probably more of what we would call repositioning, right? If we're just leasing the box, we might be splitting the box. And if we are splitting the box, sometimes we're doing some adjacent work on the shops, and so you could call that a minor redevelopment. But in general, these are pretty straightforward, and these -- we have good activity on, quite frankly, the majority of it. So it's pretty straightforward. Now again, if we're going to split a box, maybe take off some shops when we're doing that, whatever, that could be a small, small redevelopment, reposition. But it's mostly leasing it.

[Linda Tsai, analyst]

And then based on the comments so far in this call -- sorry, it's not totally clear, would you expect overall anchor occupancy to improve by year-end in '19? Or is that more of certainty in 2020?

[John Kite, executive]

No. I think we would expect overall lease percentage and occupancy to both improve in '19. Obviously, it's going to be more weighted towards the lease percentage. But occupancy is occurring as particularly in these 8 deals that we mentioned, because half of that income we expect to get in '19.

[Linda Tsai, analyst]

And then some...

[John Kite, executive]

Go ahead. I'm sorry, Linda.

[Linda Tsai, analyst]

Go ahead, I'm sorry.

[John Kite, executive]

I was just going to say we'll -- when we give guidance, we'll be pretty clear about our lease percentages.

[Linda Tsai, analyst]

Okay. And then it just seems like overall, the retail environment has improved in spite of some ongoing closures. Has this played out at all on your lease negotiations? Do you think the tide is turning yet in terms of landlords having more pricing power?

[John Kite, executive]

Yes. I mean, I think it's pretty clear that the tide has turned. It's always a push pull with the relationship between the landlords and the retailers, and we are always kind of looking at the macro relationship that we have with each retailer. But when it comes right down to it, it's property by property. And I think in the fact that we've been able to sign 8 leases this year as compared to 2 the previous year, shows you that there is volume and there's pickup. And when we look at the remaining vacancies, we feel that we have strong activity pretty much across the board. But again, that doesn't mean that you don't have these individual deals that are negative spreads as we just highlighted this quarter. And when I look out over the next kind of 1.5 years, you have got spreads that up, spreads that are down, but when you look at the total picture, it's probably a small positive there. But certainly, as it relates to demand, there is definite demand in the space. Then it's down to Tom and I and everybody else working together to try and figure out what's the best user for the shopping center. And just because you have demand, you may make a determination of that's not the best user. So that's why this just takes time as well.

[Thomas McGowan, executive]

But I would also add that the productivity of the retailers that we're working with continues to increase on the value side, on the grocery side and different segments, health and beauty. So the ones that are out there being productive and pushing are pushing at a strong pace, which is helping demand for us for sure.

[Operator]

[Operator Instructions] Our next question is from the line of Chris Lucas of Capital One Securities.

[Christopher Lucas, analyst]

John, you mentioned earlier in the call about the term loan, which was unique that you expected it to have sort of this cost savings relative to sort of what a comparable bond would've been priced at. I guess, are there other terms that you look at in the term loan that provide you with greater flexibility than you might have had if you had gone the unsecured debt route?

[John Kite, executive]

For sure. Absolutely, Chris. I mean, one of the primary ones is the prepayability, right? When we're trying to think about the long term and you're looking at your flexibility, the idea that we can have this debt that's prepayable, and we just kind of highlighted that by actually prepaying the 7-year term loan and then prepaying $50 million on the other $200 million term loan. So that's real good as it relates to our ability to think ahead. Also just from the perspective of, as we look at our laddered maturities, and we think about that all the time, that's as important to us as what our debt-to-EBITDA is. At the end of the day, we continually want to be in front of that. And I think some people might have been surprised that we would hit that 2022 maturity right now, but when we look at the future, and we think about people's kind of complacency as it relates to capital availability, and frankly, the huge stacking in the REIT space in 2021 and 2022 that was a big part of that as well.

[Christopher Lucas, analyst]

Great. And I guess going back to the shop space conversation, couple of questions on that front. One is sort of from lease signing to rent commencement, what's the typical sort of gap there?

[John Kite, executive]

I mean, shop space is definitely quite a bit faster than box space. It's hard to say typical because there -- you might have a restaurant deal that's got a lot of buildout or you might have a nail salon deal that has no buildout, right? So it's probably on average 6 months, 6 to 9 months on average. Tom?

[Thomas McGowan, executive]

Yes. The area where we really pick up time is we move through the lease much more rapidly with a smaller tenant. And then at that point, at times we're at the mercy of their contractors. So we always try to push and help them get through permitting. So it's a much quicker process, but of course, we always want it to go even faster, and we work on that every day.

[Christopher Lucas, analyst]

Okay. And then just as it relates to again, the shop space, you've gotten actually kind of a fairly favorable lease from a number of leases expiring. '19 and even '20 is fairly light relative to sort of what the out years looks like.

What are the mark-to-markets -- mark-to-market look on those rents, generally. And then given the somewhat lighter volume of maturities, does that help you get to a higher number on the overall lease rate?

[John Kite, executive]

Yes. I mean, look, if you look at -- if you're looking at 2019 and 2020, right? We have -- our rents are $24 and $25, and our average is $26. So certainly you look at that and you think, in general, we should be able to do better. So -- but it's not huge, it's not a tremendous difference, but there is opportunity there. And part of that, Chris, is where that gets into is the right bumps. I mean, if you -- we didn't talk about this on the call, but probably maybe a little more so than most of our peers. I mean, our cap rent spreads versus our cash rent spreads, there is a tremendous difference there. And a lot of that has to do with our small shop leasing and the fact that we push extremely hard there, and I'd say 95% of the deals we do in shop space have a minimum 3% annual bump after a 10% bump from a renewal period. So we are really focused on that. But I -- so I think that the cash mark-to-market won't be as substantial as the GAAP mark-to-market, is what I'm saying. But again, when you look at cash flow, there is real -- that's kind of earning -- it really starts to grow -- as it grows on itself, it's a big deal. Kind of like interest on interest. So I think that we're very focused on it, and I think that we can do some things there. And again, I mean, if you can lease another 2% in the shops on just at our average rent that's, what is that, $3 million off the top of my head, of NOI, maybe approximately. So we're focused on it.

[Operator]

And at this time, there are no further questions. I'd like to turn the conference back over to Mr. John Kite for the closing remarks.

[John Kite, executive]

Okay. Well, I just want to thank everybody for joining us. Look forward to seeing everybody at NAREIT hopefully, next week. Thank you.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.